TelePress Latinoamérica / April 2002
By Larry Luxner
Latin American phone companies hoping to boost their bottom line should look north to the United States for business.
That's the latest word from Pyramid Research, which points out that US-originated family remittances to Latin America exceeded $17 billion in 2000. Given an annual growth rate of 7-10%, cumulative remittances to the region could easily surpass $300 billion by 2010.
"This represents a huge but still untapped opportunity for service providers to funnel these remittances to stimulate Latin America's telecommunications markets, particularly among the less privileged C, D and E consumer segments," says Daniel Torras, director of Pyramid's Latin American research unit. "So far, only a few adventurous companies have developed cohesive strategies to benefit from this opportunity."
One of those is Teléfonos de Mexico.
In August 1998, Telmex launched "Mexico En Linea" -- a program that allows expatriate Mexicans living in the United States to purchase phone lines for family and friends back home. Not only does this strategy expand the number of subscribers, it also opens up an array of opportunities for banks, Internet portals and service providers.
"We know from our own marketing studies that people in the U.S. like to support their relatives in Mexico, but they want to have a little more control over that money," says Raimundo Varela, vice-president of marketing at San Diego-based Telmex USA. "They'd rather pay for specific services, rather than just sending money and not knowing what's happening with it."
Varela says that since the program's inception, Telmex USA has received around one million applications for phone lines, of which 70% are generally approved.
At $120 per line -- the same as what the new line would cost in Mexico -- this works out to some $85 million in revenue for Telmex. That's a fraction of the company's $10.7 billion in annual revenues, but still a nice chunk of change for any multinational.
"We're happy with the program," says Varela. "The most important thing is that the customer is happy with it."
In addition to installing new lines, Telmex USA has begun selling prepaid phone cards for tourists. Cards are offered in 50-peso, 100-peso and 200-peso denominations, and are sold for $5.25, $10.50 and $21 respectively. Varela says the cards are marketed to travel agencies, so that "the moment they arrive in Mexico, the tourist has his hotel reservation as well as a solution for telephone service."
The Telmex USA executive, interviewed by phone from Tijuana -- just over the border from San Diego -- says the process of purchasing and installing a phone line begins in Mexico, even if it will be paid for in U.S. dollars from relatives in the United States.
"The relative has to go to a Telmex branch in Mexico and ask for a line," he explained. "Once they sign up, they just say they want to pay for that line from the U.S. Then the relative in the States calls an 800 number, and we make a subscription and give them a customer number. They send the money here, via check, money order, credit card or Western Union."
The payment process is the same to support an existing line or pay the monthly phone bill, which averages $40 to $45.
Although Mexicans comprise more than 22 million of the 38 million Hispanics living in the United States, not all of them are potential Telmex customers.
"If we're talking about second- or third-generation Mexicans living in the U.S., they may not have strong ties with Mexico," said Varela. "But first-generation Mexicans usually do, because they have parents, wives or brothers still in Mexico."
In order to reach those potential customers, Telmex has been advertising its services in Mexico itself. Telmex no longer advertises in the United States, mainly because it's too expensive. Varela, noting that the bulk of his business comes from two states, Texas and California, adds that "sometimes the American relative agrees to pay for a new line in Mexico, but the relative in Mexico doesn't want it."
According to Pyramid's study, entitled "Networking the Diaspora," Latin America's average per-capita GDP is $4,116. In contrast, the average salary of a Latin American immigrant in the United States is $27,800, and 71% of the nearly 20 million first-generation Latin Americans living legally in the U.S. earn over $20,000 annually.
These immigrants send money home several times per year, with most transfers exceeding $200. Some smaller countries like El Salvador, Guyana, Haiti, the Dominican Republic and Honduras have come to depend heavily on such remittances -- which often exceed the value of their most important export commodities.
In Haiti, the Western Hemisphere's poorest nation, annual per-capita income stands at only $250 -- while the average Haitian living in the United States sends home $250 at least eight times a year.
"Currently, the only beneficiaries of these remittances, apart from the ultimate recipients, are the wiring companies that charge a commission per transfer," writes Torras. "Recipients will ultimately spend the money they receive at their own discretion, to buy food and clothing, and to pay utility bills and education for their children. Telecoms service providers, however, are not exploiting the benefits that effectively channeling these remittances to their own sectors would bring."
A case in point is Nicaragua, the poorest country in Central America, where mobile telephony revenues accounted for only 1.4% of total GDP in 2000. Remittances, meanwhile, accounted for 15% of Nicaragua's GDP.
"If the four mobile operators in the country could effectively capture one-tenth of these remittances from Nicaraguans living in the U.S. to pay for mobile services used by indigenous Nicaraguans, the mobile market could theoretically double," says Torras. "Nicaragua is not alone in Latin America; a similar message could be derived from a closer look at the numbers in other countries."
Interestingly, Latin America is home to seven of the 25 countries with the biggest volume of telephone traffic from the United States. At the top of that list is Mexico, according to the Federal Communications Commission. In 2000, nearly 950 million calls were placed from the U.S. to Mexico, generating 6.8 billion minutes of traffic; that translated into just over $3 billion in revenues for U.S. carriers.
In sixth place -- and well ahead of vastly larger countries such as Japan, France and China -- is the Dominican Republic, where 162 million calls totaling 1.2 billion minutes resulted in $221.3 million in revenues for U.S. carriers.
Tricom, a Dominican telecom firm that handles the bulk of that southbound traffic, is trying to capitalize on the demographics by offering more than just long-distance service.
Two years ago, Tricom -- which reported 2001 revenues of around $244 million -- established a New York subsidiary, Tricom USA. That unit is headquartered in the Queens neighborhood of Washington Heights, home to many of the estimated 1.5 million Dominicans living in the United States.
"This service center offers expatriates living in New York the opportunity to buy local phone service for their families in the Dominican Republic," said Tricom's investor relations director, Miguel Guerrero, in a phone interview from Santo Domingo.
Under Tricom's "Lineas Residencial Prepagada Plan USA" package, Dominicans can have a new line set up for their relatives back home for the equivalent of $128.31. This includes $91.16 for installation, $12.76 in taxes and $24.39 for the first month's service.
One big advantage of the "prepagada" plan is a restriction on calls beginning with "0" or "1," meaning that it's easier to control long-distance charges. Also, no credit references or deposits are required, and no surprises will appear on the phone bill.
The plan costs RD$400 ($24.39) a month, and like Telmex's "México en Linea," Tricom USA accepts payments via check, money order and credit card.
Unlike Telmex, however, Tricom USA makes the bulk of its revenues from the sale of prepaid phone cards to Dominicans in the United States who use them to call their families back home. Considering the high volume of calls, that's become a lucrative source of income for Tricom.
"The prepaid card business has been very successful," he said. "Tricom USA is the market leader in terms of southbound traffic from the U.S. to the Dominican Republic."
Phone companies in other countries with large numbers of immigrants in the United States, such as Colombia, Haiti, El Salvador and Peru, have been less aggressive at seeking out similar opportunities.
The reasons for this lack of action is "strikingly simple," says Pyramid's Torras.
"Telecoms markets have been growing at an explosive pace in recent years, so operators saw no need to worry about further stimuli they may not be able to cope with," according to the analyst. "However, more recently, many operators have come to the realization that subscriber value has also been decreasing alarmingly, while bad debt and churn have been increasing. Innovative approaches are necessary, and turning to North America might prove to be the solution."
One US-based company that could be well-placed to provide such services is Viamericas, which specializes in "value transfer" as opposed to traditional "money transfer."
Paul S. Dwyer Jr., co-founder and CEO of Viamericas, says that while more than half his business consists of Colombian immigrants in the United States sending money home; he also serves the Salvadoran and Dominican immigrant communities.
"Some of the payments people make through us are to pay phone installation charges and monthly charges," he said, adding that "we encourage people to use the telephone or the Internet to send money with us. We deposit directly into any bank account, and that is of tremendous value to the recipient."
Dwyer, whose company is based in Bethesda, Md., says he's talked to several telecom providers with a strong presence in the region "to see what extent they're interested" in possible ventures.
"With us in an intermediary role, we can make it easy for Latin American telcos," he said. "It's not our bread and butter right now, but the way our technology platform is built, once somebody has decided to send money or value through us, we can terminate that transaction by making a payment onto any type of account system, whether it's a bank account or a phone company to pay an installation charge. It's the same thing for us."
Pyramid itself is looking at various options, said Torras, noting that the Boston-based company is "exploring the possibility of doing some consulting work for operators in Haiti and Ecuador." Torras declined to name the operators, though Pyramid's most likely partner in Haiti would be Haitel, a Worldcom subsidiary.